Singapore's Currency Shakes Off Easing, Joining Europe and Japan

  • MAS's April 14 surprise sent local dollar down most this year
  • Yen, euro, kiwi all gained this year after central banks eased

Singapore’s dollar has already undone all of its drop from last week’s surprise easing as central banks worldwide face the limits of monetary policy in weakening a currency.

The local dollar strengthened 1.5 percent over the past three trading days, after dropping 0.9 percent against the greenback on April 14, when the Monetary Authority of Singapore shifted to a neutral stance. The euro strengthened even after European Central Bank President Mario Draghi boosted the region’s record stimulus last month, while the yen surged to the strongest in 17 months last week despite Bank of Japan Governor Haruhiko Kuroda’s introducing negative rates in January. New Zealand’s dollar has appreciated since central bank chief Graeme Wheeler unexpectedly cut the key rate on March 10.

Traders are paying more attention to the Federal Reserve as futures indicate a less-than-even chance for a U.S. interest-rate increase by December. The Fed pared projections for rate hikes at its March meeting and Chair Janet Yellen said this month the central bank will “proceed cautiously” due to heightened risks in the global economy.

‘Fed Rhetoric’

“Draghi can bring out the bazooka, Kuroda can move into NIRP, Wheeler can cut and MAS can shift to neutral, but all Yellen needs to do is shift some dots and coo dovishness,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “A change in Fed rhetoric to signal rate hikes is needed to really see the Singapore dollar weaken more meaningfully.”

Singapore’s currency gained 0.6 percent to S$1.3428 versus the greenback at 2:41 p.m. local time. It dropped the most since November on April 14 when the MAS said it would seek a policy of zero appreciation against an undisclosed basket of currencies, returning to a neutral stance it adopted in the global financial crisis in 2008.

The local dollar is set to weaken to S$1.38 this quarter and S$1.40 at the end of the year, according to analysts’ median estimates. A gauge of the greenback fell 0.2 percent Tuesday, approaching a 10-month closing low reached on April 12.

“It’s fascinating that the MAS has eased to levels of monetary policy that haven’t been seen many times outside of a crisis, and yet the Singapore dollar has now wiped out the losses that we saw in that process,” said Callum Henderson, the head of global markets research at Eurasia Group, said in Singapore. “Part of the answer to that is what is happening to the U.S. dollar.”

Before it's here, it's on the Bloomberg Terminal.